S2N recently hosted an informal gathering of emerging med tech CEOs, a sort of group therapy session for people suffering from a form of temporary insanity that makes one want to be a healthcare entrepreneur. Two of the participating CEOs, Christopher von Jako, Ph.D. and Edward Kerslake, had sold their companies in 2014 for a combined $500M+. Chris and Ed kicked off a lively discussion of lessons learned from the M&A trail.  Without getting into too much detail (what happens at S2N stays at S2N), the group offered some sharable wisdom on approaching, enduring, and succeeding in the medical device M&A game.

Run a tight ship

Companies that buy emerging med techs are usually quite experienced at due diligence, and know all the rocks to look under for valuation busters.  If you see a strategic exit in your future, pay special attention to regulatory and quality documentation, as well as contracts with customers, distributors, suppliers, and so on.  You may also consider having a litigator ‘attack’ your patents so you can uncover and patch holes in your IP early on. “Everything imaginable will get scrutinized during diligence.”

Always keep your pitch book fresh

Smallco pitch decks tends to get dusted off and revised when management is gearing up for a fundraise. The exit experts recommended keeping that PowerPoint updated at all times, and taking every opportunity to practice delivering the pitch along the way.  “You might not have a lot of time to pull this together when opportunity knocks.”

Build relationships with investment banks

Even if you aren’t in selling mode, it’s good to know the who’s who of investment banks, particularly which i-banks are working with which strategics.  The experts suggested getting an investment bank involved about 6 months before you want to sell.  “A good investment bank will do a lot of work to earn the business, and their involvement can help validate the credibility of your company.”

Have a selling price in mind

While the investment banks are very motivated to do deals, they aren’t necessarily incentivized to get the best price.  Small-co’s should develop and maintain a rigorous pro forma justifying their desired acquisition price; key valuation drivers in the pro forma include revenue growth rates and synergy value for the acquirer.  “It’s best to go in a little high and get talked down.”

Keep the M&A inner circle small

It’s hard enough to run an emerging med tech company – harder still if half the employees are distracted with diligence or rumors of an acquisition.  To protect on-going operations, the experts suggest limiting the number of employees pulled into diligence activities, and keeping interactions with potential buyers low profile, e.g. hosting them at the company only after 6:30pm. “The fewer people that know and are involved, the less chance of a leak and distraction.”

Maintain the momentum

Any successful exit requires a champion (at least one) at the acquiring company who will push for the transaction and make things happen; companies don’t make acquisitions, people do. Identifying and nurturing those advocates is critical, and so is making sure the deal closes on their watch. “A key champion can move on from the company and then you are stuck.”

The meeting wrapped up with someone offering the old axiom, “Companies are bought, not sold.” Honestly not everyone in the room was nodding in vigorous agreement to that one. However, whether you think you have the power to push a sale or not, playing it cool with the strategics can be a wise bet.  “Position your interactions with them as updates, but always stay in touch.”